A LEADING Welsh economist last night warned that the Bank of England must start taking its inflation target seriously, after hopes of a fall in the key measure failed to materialise.

A LEADING Welsh economist today warned that the Bank of England must start taking its inflation target seriously, after hopes of a fall in the key measure failed to materialise.

Analysts had expected the Consumer Price Index measure of inflation to fall to 2.6% in November, but figures released by the ONS showed that it remained unchanged at 2.7%.

The figure had hit a three-year low of 2.2% in September, but energy price rises are expected to push CPI inflation as high as 3.5% by the middle of next year, although that would be well below last-year’s peak of 5.2%.

With the inflation rate staying stubbornly above the Bank of England’s 2% target, Professor Patrick Minford of Cardiff Business School warned that consumers, especially those with savings, were suffering in the current environment.

He said that the Bank of England needed to move to normalise interest rates and tackle inflation.

"They should really announce that they are taking the inflation target seriously, and moving towards a tougher normalisation of rates," said Professor Minford, a former economic adviser to Margaret Thatcher.

"They have let it go over 5%, and while it has come down it is now going up again, and that is very bad news."

He argued that monetary policy had been used as a substitute for tackling the underlying problem of getting banks to lend. He warned that the reason banks were not lending was as a result of heavy-handed regulation that was an over-reaction to the poor regulation of the sector before the collapse.

"They need to look at the underlying problem that is hitting growth levels – there is no credit in the economy," he said. "The banks are sitting on their hands.

"They need to focus on the real problem of the banking system. They could unfreeze the banks by loosening up the regulatory regime. They need to have less regulation on the banks, while tightening up monetary policy."

His warning comes as incoming Bank of England Governor Mark Carney has spoken of moving away from the inflation target to one of growth, but Professor Minford said a focus on inflation was needed, although he said the said the target could potentially be modified by the incoming Governor.

"When he was at the Bank of Canada they had a big review of monetary policy to look at whether rather than targeting inflation each year you target average inflation over a period of years," he said.

"I think it would be good if he instituted a review like that here and I would welcome a debate about what the logical framework is."

The new ONS figures showed that CPI remained at 2.7% as higher food costs and an energy price hike by Swalec-owner SSE offset a fall in fuel prices.

The ONS said upward pressure from gas and electricity prices pushed housing and household services inflation up by 0.6%.

But November’s figures do not account for price rises by the remaining five of the "big six" energy providers which have imposed, or are set to impose, price increases of between 6% and 10.8%.

Increases in the price of fruit, bread and cereals also pushed up the CPI rate, the ONS said.

But a fall in the cost of transport was the biggest factor which kept the rate of inflation down.

Petrol prices fell by 3p to £1.35 per litre, while diesel dropped 1.5p to £1.42 per litre in November, the ONS said.

The figures also showed that the rate of the Retail Prices Index (RPI), which includes housing costs, fell to 3% in November, down from 3.2% in October as transport costs and mortgage interest payments fell.

A Treasury spokeswoman defended the current inflation level.

"Inflation is nearly half of the 5.2% peak it reached last year," she said. "At the Autumn Statement, the Government took more action to help households with the cost of living including a further increase in the tax-free personal allowance and cancelling the fuel duty increase that was planned for January."

Alistair Wardell, Partner Grant Thornton Wales, said he would not be surprised to see inflation rise again in the new year.

"While UK inflation remains unchanged in November, extrapolating the underlying data suggests there could be further increases in the coming months," he said.

"The push of increases in food and energy prices on inflation were offset in November by a fall in transport costs and a reduction in demand-driven inflation from discretionary spending in items such as plane tickets, carpets and beer. There are further energy price increases to come and it is widely expected that supermarket food prices will increase due to recent world weather conditions.

"All of this increases the likelihood the Government will take a hard look at switching the target for the Bank of England away from inflation to a GDP target, although the consequences of this are far from certain and untested in this country."

Cennydd Thomas, corporate finance manager at UHY Peacheys Chartered Accountants said he also expects to see inflation rise further.

"Looking ahead to the first half of 2013, many economists are predicting that inflation will rise above 3% fuelled by the increases in gas and electricity prices that were announced recently," he said.

"In addition, with the March 2013 deadline for Iranian co-operation with the International Atomic Energy Agency looming, this is likely to cause significant volatility in the Middle East and further upward pressure on oil prices which will probably feed through into the inflation figures."

Siobhan Mail, Director at Newport-based Seer Green financial planning specialists, said: "I’m somewhat relieved the rate has not actually gone up again, bearing in mind the on-going issue with rising food prices and energy bills. Both of these are the main drivers yet again, behind the latest figure which continues the Bank of England’s record of seeing CPI above its 2% target for more than three years.

"The depressed state of the economy means the BoE is effectively unable to intervene and attempt to reduce inflation at the moment – rather than just explaining to the government that it’s missed its target yet again. Further global increases in food prices caused by weather problems in other food producing countries, and other UK energy company price rises are both areas that are anticipated to push the figure higher again, with 2014 being the earliest we can now expect to get anywhere near the 2% target."